A.M. Best Removes Ratings of Global Atlantic Financial Group’s Subsidiaries From Under Review
October 4, 2013 by Best's News Service
OLDWICK, N.J. – A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating (FSR) of A- (Excellent) and issuer credit ratings (ICR) of “a-” of Commonwealth Annuity and Life Insurance Company (Commonwealth) and its subsidiary, First Allmerica Financial Life Insurance Company (FAFLIC) (both domiciled in Southborough, MA).
A.M. Best also has removed from under review with negative implications and affirmed the FSR of A- (Excellent) and ICR of “a-” of Commonwealth Annuity and Life Reinsurance Company Ltd. (Commonwealth Re) (Bermuda). The outlook assigned to the above ratings is stable. These entities are ultimately owned by Global Atlantic Financial Group (Global Atlantic) (headquartered in Bermuda).
The rating actions follow Global Atlantic’s fourth-quarter 2013 acquisition of AVIVA plc’s (AVIVA) U.S. life insurance business from Athene Holding Ltd. (Athene). The rating actions also reflect A.M. Best’s view that the acquisition will provide Global Atlantic with new sources of earnings diversification, as this acquisition will enhance its product lines and distribution channels. Challenges exist with respect to Global Atlantic’s rebranding of AVIVA’s products, the heightened expenses associated with the integration and execution risks. A.M. Best will continue to monitor the effects of this transaction on Global Atlantic’s earnings, top line growth and capital adequacy going forward.
The ratings also recognize the recent announcement that Global Atlantic has entered into a definitive agreement to acquire Forethought Financial Group, Inc. (FFGI) (Delaware) and its key subsidiary, Forethought Life Insurance Company (Indianapolis, IN). Upon the completion of the transaction, FFGI will become a wholly owned subsidiary of Global Atlantic. At that time, Global Atlantic will acquire all products and designs, distribution, marketing, intellectual capital and employed talent, as well as all in-force business of FFGI. This transaction will provide additional product diversification to Global Atlantic, including its pre-need insurance.
Offsetting rating factors include Global Atlantic’s recent loss of the Goldman Sachs brand and its capital support as Global Atlantic will need to establish new brand awareness and implement certain infrastructure and systems capabilities as a stand-alone entity. Additional offsetting rating factors include the group’s elevated, although declining, exposure to structured securities within its fixed income portfolio and the challenges relating to the continued low interest rate environment. Furthermore, Global Atlantic’s business plan is fairly new and remains untested.
Concurrently, A.M. Best has assigned a FSR of A- (Excellent) and an ICR of “a-” to Presidential Life Insurance Company – USA (PLIC-USA) (Des Moines, IA). The outlook assigned to both ratings is stable.
The ratings reflect PLIC-USA’s role to acquire the AVIVA U.S. life business (consisting of life policies written by Aviva Life and Annuity Company, a subsidiary of AVIVA) primarily through reinsurance. PLIC-USA was acquired from Athene as part of the completed AVIVA U.S. life transaction. The ratings also recognize PLIC-USA’s focus on cash accumulation products, adequate risk-based capital and leveraging of existing distribution relationships.
Offsetting rating factors include challenges associated with the future funding of PLIC-USA’s AXXX and XXX reserves and its rebranding efforts. The ratings also acknowledge the uncertainty regarding sales growth and potential integration risks.
A.M. Best believes Commonwealth, FAFLIC, Commonwealth Re and PLIC-USA remain well positioned at their current rating level. Negative rating actions could occur if capitalization, operating performance or both fall markedly short of A.M. Best’s expectations. Negative rating pressures also could occur should there be earnings pressure or a failure to successfully integrate current and future acquisitions.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at http://www.ambest.com/ratings/methodology. BN-NJ-10-03-2013 1024 ET #
